Coinbase has recently been demonstrating why consumer regulation is such a problem. The company seems to be tracking what their customers are buying with Bitcoin and closing any accounts involved in transactions that the company objects to.
It is probably no secret that Bitcoiners are not fans of regulation. What is generally misunderstood though is that the aversion is not to regulating in general. We understand that in the real world, the big financial powers are never regulated in a practical sense. Consumers, on the other hand, are heavily regulated.
Regulations are almost never designed to protect the consumer. Instead they are put in place as a way to control the flow of consumer spending and to protect the interests of the financial sector. The New York BitLicense is a good example of this problem, as it was designed to favor credit card companies and put a burden on Bitcoin development and acceptance.
Now Coinbase has been banning user accounts that send Bitcoin to gambling sites, even though online gambling is not illegal. One Reddit user also complained that coinbase banned his account for allegedly purchasing cannabis products with coins purchased from the service.
“I have been a long time coinbase customer, buying 1-3 times per month, I got an e-mail today saying they are banning me from using their services because of a ToS violation. I e-mailed them back to ask what the violations [were] and they told me that they have evidence that I used some of the BTC I bought for cannabis/cannabis seeds. They gave me a specific BTC transaction and said it was for drugs and wouldn't listen to anything I had to say.”
“Because I buy a few bitcoins a week from Coinbase (although sometimes I will go months without buying any) I was flagged as having enough volume to potentially be a Money Services Business (MSB) and the Coinbase ‘compliance team’ mounted an investigation against me. They determined that ‘they have reason to believe’ I am selling Bitcoins on LocalBitcoins, even though they haven't said what that reason is, and therefore are suspending my account.”
Coinbase explains that the company is only trying to stay in compliance with federal anti-money laundering regulations and drug laws. We understand that any company has a fiduciary responsibility to protect the company for its shareholders. But it appears that Coinbase has crossed the line by not only tracking coins purchased through its service, but also tracking how users spend their Bitcoins after withdrawing them from their Coinbase wallets.
These types of practices are the very antithesis of Bitcoin and virtual currencies, and they are the main reasons why most Bitcoin users fear regulation. It is often used to regulate taste rather than safety, and it can also be used by a company to suppress the business of its competitors. These are arbitrary overreactions by a company that fears the laws that they claim to respect.
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It is probably no secret that Bitcoiners are not fans of regulation. What is generally misunderstood though is that the aversion is not to regulating in general. We understand that in the real world, the big financial […]